Village Roadshow flags potential closure of Movie World

Village Roadshow shares took a dive today falling 31.05% as the entertainment group announced major disruptions to its business as a result of COVID-19.

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The Village Roadshow Ltd (ASX: VRL) share price took a dive today, falling 31.05% as the ASX entertainment group announced major disruptions to its business as a result of COVID-19.

Restrictions on gatherings of more than 100 people have hit Village's cinema business hard, while travel restrictions are causing a decline in visitor numbers at theme parks. 

Update to COVID-19 response

This morning, Village announced that major studios have rescheduled a number of 2HFY20 titles including the latest instalments from the James Bond and Fast & Furious franchises. This will have a significant adverse impact on trading in its Cinema Exhibition division. 

The Theme Parks division has continued to experience a decline in visitors, particularly from the international tourist market. Weaker forward bookings and lower annual pass sales to the domestic market have made recent trading challenging, and Village expects this to continue. 

Since Village released its announcement this morning, the Australian Government has introduced even tougher border protection measures. From 9pm tomorrow, all foreign travellers will be banned from entering Australia. Previously, only travellers from China, Iran, Italy, and South Korea were banned. 

This new restriction is likely to further decrease visitors to Village's theme parks, which include Movieworld, Sea World, and Wet 'n' Wild. CEO Clark Kirby said, "based on international precedent, it is possible that cinemas and/or theme parks may be closed in Australia for a period of time, which would have a significant adverse impact on VRLs earnings during that period." 

Village is working on contingency plans in the event its venues are forced to close, but in the meantime, cannot provide meaningful guidance on the Group's FY20 earnings. The dynamic and uncertain nature of COVID-19 on Village's business makes it extremely difficult to predict the overall consequence of the virus and associated restrictions on Village's financials. 

Cost-saving initiatives

Village is implementing cost reduction strategies to mitigate the impacts on its earnings and cash flow. These include reducing senior executives' salaries immediately and reducing their bonuses to zero.

A freeze has been implemented on all non-essential uncommitted capital expenditure as well as all non-essential recruitment, consulting, and advisory work. All employees are being asked to take leave to reduce employee costs. Village is also liaising with Federal, State, and Local governments to develop action plans and support. 

Kirby said, "the cost reduction measures we are implementing will assist our group earnings and cash flows in challenging circumstances. Most of our earnings are derived from the domestic market which should enable a swift recovery once this terrible pandemic has passed."

Motley Fool contributor Kate O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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